Is your UK property worth its weight in tax?

British expatriates with UK property need to be aware of all the tax costs involved today, including capital gains, stamp duty, inheritance and higher council taxes.

Many British expatriates believe it makes financial sense to keep hold of a house in the UK. However, over recent years the tax burden has generally increased for property owners, particularly non-residents. In fact, the UK has recently gained the dubious honour of having the highest property taxes in the developed world, boosting Treasury coffers by over £80 billion in the last tax year.

If you have UK property, make sure you understand the tax costs.

Capital gains tax

Before April 2015, generally expatriates did not attract UK capital gains taxes. Now, non-resident individuals and trusts with UK residential property are liable for ‘non-resident capital gains tax’ (NRCGT) of 18% or 28% on growth accrued since 6th April 2015. After selling a UK residential property, even if no tax is due, non-residents have 30 days to file a NRCGT tax return to avoid penalties.

Next year, non-residents disposing of interests in commercial UK property will also face capital gains tax for the first time. From April 2019, NRCGT is due to be charged on the sale of any UK real estate or land, whether owned directly or indirectly (excluding Scotland), based on the revalued amount as at April 2019.

Annual tax on enveloped dwellings (ATED)

The ATED regime applies to UK residential properties not directly held by an individual or trust – for example, those owned or part-owned by a company, collective investment scheme or partnership (where one of the partners is a company). Implemented in 2013 to apply to ‘enveloped’ properties worth over £2 million, in April 2016 the valuation band dropped to £500,000. Rates for the current chargeable period start at £3,500, peaking at £220,350 for properties worth £20 million+.

Enveloped dwellings worth over £500,000 also attract an ATED-related capital gains tax of 28% on gain accrued from April 2013, unless relief is available. ATED rules override both the NRCGT and corporation tax regimes, so a company-owned property, for example, would be liable for 28% ATED-related capital gains tax, instead of the current 19% corporation tax rate.

With these changes, holding UK property through a company has become much less beneficial. The former UK inheritance tax benefits of keeping property within a corporate structure have now also disappeared.

No tax relief is available for ‘de-enveloping’ property, so if you hold UK residential property within an enveloped structure, take care to understand your options and associated costs.

Inheritance tax

Since 6th April 2017, UK residential property owned through certain offshore structures has fallen within range of UK inheritance tax. The changes have particularly affected ‘excluded property’ trusts directly or indirectly owning residential property in the UK. A non-UK domiciliary who holds a UK residential property through an offshore company, for example, should therefore consider restructuring to avoid an unexpected 40% inheritance tax bill on death. This applies to UK residential property of any value, whether occupied or let.

Only first-time buyers benefit from the 2017 Budget’s £300,000 stamp duty relief and 5% rate on property purchases up to £500,000. For everyone else, the £125,000 threshold remains, with rates up to 12%.

A 3% stamp duty surcharge still applies when purchasing additional UK residential properties, such as second homes and buy-to-let properties, bringing the top rate to 15% (for properties over £1.5 million). Overseas properties should be included, so if you own a foreign home and buy another in Britain – even if it is your only UK property – additional stamp duty may be payable.

Stamp duty land tax no longer applies in Scotland; instead you pay a transaction tax. From April 2018, Wales will also introduce a transaction tax to replace stamp duty.

Other taxes

If you retain an unoccupied UK property, your council tax rates could double from April, when local authorities gain the option to increase council tax premiums by 100% on properties vacant for two or more years.

Reduction in buy-to-let tax relief continues. Before April 2017, landlords were able to claim tax relief on their monthly interest repayments at the top level of tax they pay – a tax saving of 45% for higher earners. Up to 6th April, landlords can only claim 75% of mortgage interest relief against the income, then 50%, eventually whittling down to zero by 2020/21. S&P Global Ratings estimates that 60% of recent buy-to-let loans will consequently become loss-making as profits fail to outweigh expenses.

British expatriates living in Spain, France, Portugal, Cyprus, Malta, Monaco or Gibraltar can benefit from speaking to Blevins Franks. Because our advisers have in-depth knowledge of the tax regimes of these countries as well as the UK, we can ensure you hold all of your assets in the most tax-efficient way possible. We can also present opportunities that may offer much better tax advantages and returns than UK property.

Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.

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Who We Are

Blevins Franks has been providing specialist financial advice to British expatriates across Europe for over forty years. Our expertise covers tax, estate planning, pensions and investment management to offer a genuinely holistic approach to financial planning.

If you’re living abroad, thinking about moving, or planning to return to the UK, we can help you make the most of your wealth in the most tax-efficient way possible.